Raiffeisen Hungary makes key announcement

Key measures

• Raiffiesen Hungary will reduce the number of branches to 67 from 112 currently;
• It plans 20% haircut, i.e. lowering costs by more than HUF 10 bn annually;
• The number of employees may be reduced by 15% by end-2016, most layoffs will take place this year;
• Instead of mass retail services, the bank is to focus on its corporate, as well as on premium and private banking businesses.

Announcement by Raiffeisen Hungary CEO Heinz Wiedner

• He has confirmed Raiffeisen’s commitment to Hungary;
• The bank intends to focus on its strengths, namely on corporate clients (large, medium-sized and small enterprises), as well as on premium and private banking customers. It wants to offer the best services there are in these areas in Hungary;
• The number of branches are to be slashed to 67 from 112 currently over altered client habits, directing services increasingly towards digital channels;
• Cost are to be lowered by 20%;
• About one third of the achieved cost cuttings would be used to reduce employee-related costs and two thirds would be spent on lowering material costs;
• The cost/income ratio could drop to around 50% from above 60%;
• The ratio of non-performing loans (NPLs) is to be lowered to a single-digit figure over the next two years;
• The capital adequacy ratio (CAR) of the bank could come in at around 20%;
• The bank could swing back to profit already in 2016;
• Responding to Portfolio’s question, Wiedner said they have no specific target regarding size (risk-weighted asset or RWA) reduction;
• Also to a Portfolio question he responded that the bank does not expect to sell a major amount of liabilities to the central bank’s asset management company (Mark Zrt.)
• Although Raiffeisen Hungary would use the services of Mark Zrt., this is not expected to be the primary means to portfolio cleaning. It would rather use solutions outside the asset manager.

Not everything revolves around cost cutting. The bank sees a 15-20% staff expansion in the premium and private banking businesses and it would also significantly boost assets managed in the latter (from over HUF 320 bn currently). Operations will be according to the new focuses as of the fourth quarter. The bank would like to retain 80% of the retail customers, and via enhancing new electronic channels this group would still be lent to.


This is how Raiffeisen Hungary fared in 2014

Following HUF 31.2 billion loss in 2013, Raiffeisen’s Hungarian operation incurred HUF 114.7 billion after-tax loss in 2014. The cause of this huge negative figure is the settlement of foreign currency loan charges deemed unfair by the government and courts. The bank accumulated EUR 251 million (cc. HUF 80 bn) worth of provisions for this last year. Without this item, it would have posted a result similar to the one in 2013. Key attributes of Raiffeisen Hungary’s 2014 results:

• net loss came in at HUF 114.7 bn;
• operating income dropped 14% yr/yr, and (within this) net interest income decreased 18%;
• the ratio of non-performing loans (NPLs) retreated to 27% from 29% at end-2013; loan provisions (excluding settlements) fell 6% yr/yr to HUF 39.3 bn from HUF 41.8 bn, which are both positive developments;
• the loan-to-deposit ratio came in at 110%, down considerably from 123% at the end of 2013.

Parent bank plans

Raiffeisen Bank International (RBI) announced its plans for 2015-2017 on 9 February. The latest measures most likely fit into these:

• The bank is to take a number of steps to facilitate an improvement in the common equity tier 1 (CET1) ratio (fully loaded) to 12% by end-2017, compared to 10% at end-2014;
• The planned steps will affect a number of operations across the RBI Group, in particular those areas which generate low returns, have high capital consumption or are of limited strategic fit.
• The measures to be implemented include sale of the operations in Poland and Slovenia, as well as the direct banking unit Zuno;
• Exposure to the Russian market is to be reduced, with a risk-weighted asset (RWA) reduction of about 20% planned by end-2017 (RWA as at 31.12.2014: EUR 8.4 billion)’’
• A reduction in exposure is also foreseen in Ukraine, where riskweighted assets will be decreased by about 30% by end-2017 (RWA as at 31.12.2014: EUR 3.0 billion)
• In Hungary further optimization of the operation will be undertaken. As part of the drive to increase Group focus on the CEE region, operations are to be significantly scaled back or exited in Asia by end-2017 and in the United States by end-2016.
• The implementation of these measures will result in an aggregate gross RWA reduction in the selected markets of about EUR 16 billion by end-2017. The total gross reduction from end-Q3 2014 to end-2017 will amount to around EUR 26 billion (down 38%!). The reduction is expected to be partially offset by growth in other business areas.
• The business model of the group is not to be changed and RBI plans fast growth on select markets. The above measures will improve the bank’s risk profile, strengthen its capital position and will ensure sustainable profitability, Group CEO Karl Sevelda said.

RBI said in February it would close some of its branches in Hungary and instead focus on its corporate and premium clients. Sevelda, however, told a press conference in Vienna that RBI insists on staying in the country as it is a market "far too important to give up".

In a conference call, Sevelda said RBI will "review our business model to reflect the new environment" in Hungary, adding that among positive developments in the country, he noted a portfolio improvement and said the Swiss franc problem had been "solved". Sevelda also said that the bank "can see light at the end of the tunnel."

Click on the link below for more:For more comments by the CEO on Hungary click on the link below.

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